ANZ’s Shayne Elliott knows biggest battle in Suncorp take over is keeping Queensland onside

A pedestrian walks past a Suncorp Bank branch, as ANZ pushes ahead with one of the biggest takeovers in the sector for more than a decade. Picture: AFP

The first big corporate test is coming for Jim Chalmers, who grew up in Brisbane and gets the final sign-off on ANZ’s $4.9bn acquisition of Suncorp’s banking arm.

ANZ has some convincing to do that its move on Suncorp, that simply restores the lending market share lost in recent years, will also be of benefit to the Treasurer’s home state.

Shayne Elliott, the wiry Auckland-born banker who runs ANZ, is acutely aware of how important parochialism is. That’s why he is talking up the benefits for Queensland more than benefits for ANZ shareholders across the rest of the country.

ANZ’s CEO Shayne Elliott announces the acquisition of Suncorp Bank in Brisbane. Picture: Arsineh Houspian

Indeed Elliott, who caught an early Sunday morning flight to front the deal in Brisbane on Monday declared: “We’re going to do whatever it takes” to convince Queenslanders to trust the Melbourne bank to through the merger, including growing the business.

ANZ stopped short of turning maroon, but as part of the charm offensive directed at Brisbane he has pledged to protect Queensland jobs, branches and ATMs.

This is not aimed at the competition regulators that will have a tough time overruling ANZ’s marginal increase in market share, but its all about Queenslanders.

Elliot set aside $15bn in green lending commitments as well as supporting Olympic Games infrastructure. Then there’s another $10bn of lending commitments earmarked for funding Queensland businesses over the next three years.

Elliott is playing the long game with the merger, modelling it more on ANZ’s decade-long integration of New Zealand’s biggest bank in the mid-2000s.

For the next few years across Queensland, Suncorp’s 48 branches and staff will continue to sit alongside ANZ’s own network.

ANZ’s ‘blue’ branding is likely to be rolled out nationally. Picture: NCA NewsWire/Bianca De Marchi

Suncorp’s current banking executive team will also remain in place, although they will report to Docklands, not Ann Street.

The targeted synergies – cost savings – were in the fine print of the merger documents and only amount to an unambitious $260m annually by year six. The bulk of this is likely to be savings on tech and investment programs already committed.

All this points to the merger being more about securing ANZ’s market share than seeking a near-term earnings boost.

It’s worth noting ANZ’s “blue” brand eventually won out in New Zealand over the “green” NBNZ business it bought. Over time blue is likely to win out in Queensland.

The rest of the country will be a moot point with Suncorp’s expansion into southern states set to come to an end with customers to be rolled over to ANZ’s platform at a faster rate.

Paying up

ANZ is paying up for Suncorp, including $1.3bn in goodwill, which puts significant value on the Queensland brand and its 1.2m customers. It will also lease the name “Suncorp” for up to seven years for $10m a year.

For ANZ, the acquisition will help boost its footprint in Queensland as well as NSW, two markets where it has long been underweight. There are additional benefits south of the Tweed too. Of Suncorp’s $46bn home lending book, around half of this is based in Queensland, some 28 per cent is in NSW, which is a sizeable chunk, and Victoria represents 13 per cent. Business customers are skewed more to Queensland, but there are still $11bn of loans and relationships up for grabs.

ANZ's CEO Shayne Elliott, far right, and chairman Paul O'Sullivan at a press conference for Suncorp Bank in Brisbane with Suncorp's CEO Steve Johnston, far left, and Suncorp chair, Christine McLoughlin. Picture: Arsineh Houspian.

While banks in recent years have been talking up how digital channels have levelled the playing field, Elliott says ANZ would have never been able to achieve the step up in growth that Suncorp offers.

“There’s 1.2 million customers, 700,000 of whom live in Queensland … and it’s a massive opportunity for us we could never achieve organically,” Elliott says in an interview.

“The idea that we could, you know, I don’t know, employ people, open branches, do some marketing, get out there and acquire 700,000 retail customers across Queensland. I can’t even imagine how many decades that would take. So this is a big step forward.

“Our job now is to responsibly bring those customers into the ANZ family where they feel equally proud and equally at home.”

Bendigo drift

Banking is all about scale, which means the customers and relationships are more valuable to ANZ than Suncorp, which was at the limits of what it could do to grow the bank. ANZ can now spread the cost of its catch-up spend in technology across a bigger balance sheet, while the average cost of writing a loan also falls.

Elliott says Suncorp customers will benefit from new digital banking technology being rolled out and the promise of faster loan processing.

Suncorp had another serious suitor in the form of Bendigo Bank, another Victorian lender, but one with regional ambitions and would have gone some of the way to building the much fabled fifth pillar in Australian banking. Bendigo initially approached Suncorp in March, but as The Australian’s DataRoom column revealed, Suncorp was already deep in talks with ANZ.

Any buyout would have been a significant bite for Bendigo, requiring a sizeable capital raising, and effectively doubling Bendigo’s market capitalisation. It is understood that Suncorp’s board was prepared to wear any political heat by siding with the bigger ANZ, viewing the deal with the big four bank as having much less execution risk – including with regulators.

Suncorp splits

From Suncorp’s view it was a matter of time before it pulled the trigger on a banking sale.

Fittingly, Suncorp chief Steve Johnston was a young adviser to Rob Borbidge, the then Queensland Premier who in the mid-1990s was instrumental in stitching together the three state-owned businesses of insurance, banking and corporate lending that ultimately became Suncorp. The aim was to have a national champion operating out of Brisbane to take on the southern banks.

The benefits of having a bank, insurer and wealth manager together under the same roof have rapidly diminished since the global financial crisis and if there was any doubt the Hayne financial royal commission later killed off the one-stop shop model.

Steve Johnston, Suncorp Group CEO. Picture: Josh Woning

Suncorp Bank was caught in a strategic trap over the past decade. Due to the lending excesses during the mid-2000s, the bank’s near-death experience during the GFC had meant there was next to no boardroom appetite to grow beyond writing the lowest-risk housing loans.

Johnston tells The Australian the need for Suncorp to fund its growth meant that the time was right to make a serious call on the future direction of the company.

“We’ve always believed we’ve got the capacity to run both businesses well, the reality of it is at the moment there are material demands on both businesses for capital and investment,” he says.

Meanwhile Suncorp’s insurance business is taking climate change seriously as it faces a higher frequency of natural disasters. This means more management time is spent advocating for flood mitigation and infrastructure resilience.

National champion

Johnston points out Suncorp Bank’s business and bigger agribusiness customers were now set to benefit from a bank with a bigger balance sheet, higher risk appetite and ability to offer more sophisticated lending as well as export markets. This was simply not available through Suncorp’s regional bank, he adds.

Today the broader Suncorp business has grown up to be a very serious insurer. Helped by a string of acquisitions including AAMI and GIO, it is neck-and-neck with Sydney’s Insurance Australia Group in terms of national market share on home, motor and business insurance. It also operates a sizeable franchise in New Zealand. And this is where Suncorp’s board is more comfortable taking calculated risk and investing for higher growth.

Investors who have been pushing for a sale for years, delivered Suncorp with an immediate reward. They sent Suncorp’s shares up 5.9 per cent on the prospect of a cleaner, focused, more efficient business. It is now being valued closer to the premium that rival IAG gets.

And for Queensland, which cops more than its fair share of floods, hurricanes and hail, it is right that their national finance champion should back itself in the insurance game.

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